Supportive eBay Shareholders Emerge from the Woodwork

NEW YORK (TheStreet) -- As Carl Icahn adds fire to a scorched-Earth activist campaign against eBay's (EBAY) management, board and business strategy, supportive shareholders of the company are beginning to come out and protest the billionaire activist investor's almost-daily screeds.

Smead Capital Management, a small Seattle-based mutual fund, on Wednesday wrote an open letter to Carl Icahn that questioned whether the legendary investor's criticisms of the company were short sighted and one-sided.

"Were you there in 2010?," Smead Capital chief investment officer William Smead wrote on the firm's blog.

Smead Capital counts eBay as its third largest stock position. Still, according to Bloomberg data from December, that investment is less than $100 million in total, a fraction of the size of Icahn's stake.

Smead Capital's blog post, however, underscores that there are investors who support eBay's strategy and its current management, led by CEO John Donahoe. As eBay's annual shareholder meeting approaches, it will be interesting to see if other rank-and-file shareholders come out and voice support of the company's management.

It is also worth noting that Smead Capital has invested in eBay since 2010, when shares traded below $20 apiece, whereas Icahn first disclosed an investment in the e-commerce giant in 2014.

In an interesting twist to Icahn's criticism of eBay's sale of Skype to Silver Lake Partners -- a deal that quickly paid off for the private equity giant -- Smead Capital said it sold its Microsoft (MSFT) shares shortly after the software giant bought Skype for $8.5 billion.

Below are some excerpts from Smead's Capital's blog, which can be read here:

"When I read your letters or see your TV appearances, I'm reminded of the old gospel hymn, 'Were You There.' Pardon us for interrupting your perpetual excoriation of CEO John Donahoe and the board of directors of eBay (EBAY), but we at Smead Capital Management would like to ask you a very important question: Were you there as an owner of eBay in 2010? Were you there, as we were, when the stock traded below $20 per share in that summer? Have you been there all along to recognize how undervalued eBay was at the start of 2011 and 2012? The answer to our questions should help others frame this debate which you have made public on whether eBay should split itself up or continue down the path based on the vision of John Donahoe.

As former stockholders of Microsoft (MSFT) and on location in Seattle, we couldn't have been more thrilled when Donahoe and Silver Lake found the sucker at the poker table and sold Skype to Microsoft. Microsoft was already bleeding red ink all over the place on non-core businesses like Bing and was now going to lace our pockets by paying what we thought was way too much for Skype, while also adding to what Peter Lynch calls their 'diworsification.' In our mind, anyone who runs a large operating business or non-profit is thrilled for their first loss to be their best loss. John Donahoe cleared a $1.9 billion profit on Skype and we were thrilled as common stockholders. EBay was one of our top holdings and was our number one position at the beginning of 2010. We sold our last shares of Microsoft soon after the transaction was announced.

Therefore, Carl, we agree with you that eBay is undervalued and misunderstood. We don't think many people believed in what John Donahoe was doing in 2010. The stock has been a spectacular performer since 2010 on both an absolute and a relative to the market basis.

While we agree that spinning out PayPal would give the company a short-term boost in stock price, we believe it will get in the way of all the money that John Donahoe and his team can make us over the next ten to twenty years. All your activism could get in the way of what we believe will be a multi-decade ten-fold increase in our original investment in eBay. After all, since John Donahoe took over as CEO at eBay on March 31st, 2008, the stock has outperformed both the S&P 500 and the stock of Icahn Enterprises (IEP)."